Nature of the global economy and globalisation • the global economy • Gross World Product • globalisation – trade – investment and technology – finance – labour • the international business cycle Trade and financial flows • changes in the size, pattern and direction of trade and investment • the foreign exchange market • the main participants in foreign exchange markets • the impact of changes in trade and financial flows on economies Impact of globalisation on the standard of living in the global economy Variations in the standard of living in the global economy • income and Quality of Life indicators Contrasts in levels of development • difference between growth and development • reasons for differences between nations • developing economies, Newly Industrialised Countries (NICs), transition economies, high income economies Impact of globalisation • international convergence • economic growth, development and the quality of life • trade, investment and transnational corporations • distribution of income and wealth • environmental consequences • financial markets • the international business cycle • implications for government economic policies. Case study
Topic two
Appropriate statistics
Australia’s trade and financial flows Value, composition and direction of Australia’s trade and financial flows • trends in Australia’s trade pattern
• trends in financial flows
• trends in the size and composition of Australia’s Balance of Payments
Free trade and protection • Australia’s policies regarding free trade and protection
Topic three
Appropriate statistics
Economic growth • aggregate demand and its components: Y = C+I+G+X–M
• measurement of growth through changes in real Gross Domestic Product
• business cycle — trends
Unemployment • measurement – labour force
– participation rate
– unemployment rate
• trends
Inflation • measurement — current Australian Bureau of Statistics measure
• trends
External stability • measurement – CAD as a percentage of Gross Domestic Product
– net foreign debt as a percentage of Gross Domestic Product
– net foreign liabilities as a percentage of Gross Domestic Product
• trends
Topic four
Appropriate statistics
Fiscal policy • Federal Government Budgets and budget outcomes
• effects of budgetary changes on resource use, income distribution and economic activity
Monetary policy
• implementation of monetary policy
Structural change • effects of microeconomic policies on individual product and factor markets and the economy GWP $US38,800bn-54,580bn (99-07) Since 03, World Bank changed to GNP, hence, GWNP (07) $US65,750bn Global growth averages around 5.0% G/S Goods and Services Trade as % of GWP rose from 12% to 32% (64-07) Half world exports are from top 9 countries (15% of nations account for 70% of trade) Australia accounts for approx. 1% of world trade Only 1% of forex transfer is for trade Capital flows The 3 decades following 1975 saw: Int. trade expand twice as fast as RGWP growth Int. direct investment grew 3 times faster than RGWP (prior 2001) Int. equity investment grown 10 times the rate of RGWP Direct Investment FDI rose 17.8% to $US1.5tr Portfolio Investment Dominates (stats too complex) Technology 76% of Australians now use internet compared 5.3% in Africa and 14% in Asia Distribution 1.2bn people (20%) live on less than $US1/day Main Sources of Growth (Current) China 11.4% India 9.2% CIS (Commonwealth of Independent States) 8.5% GFC Global economy contracted as a whole by 0.6%. AIE contracted by 3.2%. Unemployment at peaked around 10% for OECDs, Spain et al even reaching 20% China dropped from 9.6-9.1% growth projected at 10.% in 2010 Aus: Year to 12/09 was 2.7% growth, projecting 3.25% 2010/11 Global trade shrunk by 10.7% (09) Australian Trends Trade: 5 years to 2008/09 saw TOT rise 47% Fall of 20% in 09 but forecasted rise of 14.25% in 2010/11 Productivity: Multifactor productivity averaged 1.1% pa over the past 5. Far below the 2.3% during the 90s Growth: Australia managed 1.2% growth during GFC One negative quarter 0.7% contraction in the Dec 08 quarter RBA estimates 3.25% growth in 2010, 3.75-4.0% in 2001 Fiscal Policy:mildly contractionary 10-11 due to cyclical and discretionary factors Large fiscal deficits of -4.2% (09/10) and -2.7% (10-11) (Deficit reduction $54.8bn to 39bn). Real spending will be restrained to 2% pa till the budget returns to surplus 1% of GDP (projected to (12/13) at approx. $1bn) New taxation reforms adopting Henry Tax review recommendations, inc. MRRT – 30% levy on non-renewable resource projects Company tax cuts from 30% to 29% (improve long run Ec. Perf.) Superannuation guarantee increase from 9 to 12% (2019) Interest bearing income up to $1000- 50% discount to encourage saving. Education – Skills for sustainable growth - $661m, Education Revolution - $5.9bn (08/09), projecting 39,000 new jobs. Infrastructure - $5.6bn to New Infrastructure Fund and $1bn to existing rail networks, designed to boost productivity levels and relieve capacity constraints Health - $7.3bn over next 5 years to National Health and Hospital Network (GP super clinics, training nurses, increasing beds) Environment - $652m to Renewable Energy Fund boosting the $5.1bn for Clean Energy Fund (08/09) CPRS is undecided Monetary Policy:mildly expansionary Cash Rate: Fell from 7.25% to 3% (Sep 08- May09) Currently 4.5% and set to rise CPI: Since 96 averaged 2.9% Reached 5% Sep 08 Headline inflation 3.1% (largely due to recent increase in tobacco excise) Underlying inflation fallen 2.75% Micro policy: Factor Markets (Lab/Cap) Labour Markets Workplace relations act 96 – Awards were seen as the safety net of the industrial relations system providing either minimum standards for workers or the benchmarks which agreements were judged No downward flexibility for Wages WORK CHOICES! Change from AIRC to AFPC Collective Agreements/ AWAs no longer pass no dis. Test. This removed the award as the system safety net. Current System – Fair Work Australia – FWA Removal of formal individual agreements (AWAs) BOOT test introduced for collective agreements 10 National Employment standards Modern awards (don’t apply to common law contracts >$113,800) Awards/Enterprise agreements flexibility arrangements allow individual flexibility Unfair dismissal laws reinstated, Good Faith Bargaining Conditions Minimum Wage increased 4.8% to $569.90 (N.B this is indexed to CPI) The overall combined effect of the changes is to place more focus on collective bargaining whilst reforming awards to make them a more flexible safety net, with NES forming the absolute minimum. Capital Markets Began in early 80s 1983 floating exchange rate Deregulated interest rates Currently focusing on anti-mergers, credit fees and charges and short selling Product Markets Protection Reductions – Reforms in Manufacturing (1982/83) PMV 72% protected and TCF 220% protected average 25% all manufacturing. General reforms have been: General assistance at 5% by 2000 PMV/TCF to 5% Agriculture has declined from 11% to around 6% on average Trade Practices Act (74) Hilmer Report/ National Competition Policy (93) – Regulates Price fixing, boycotts, mergers/takeover(see ACCC). Public Sector (General) Commercialised through… Corporatisation – Aus Post Privatisation – CBA, QANTAS, Telstra (fail) Government outsourcing to private firms Taxation Policy – Income tax cuts, GST (2000)(bad for equality), Fringe Benefits Tax, Capital Gains Tax (these help equality), other tax see budget Social Welfare Policy- Move from income support policy to active employment policy’ Increases to pension age Work for the Dole User Pays Principles e.g. HECS, <bulk billing Unemployment Rate:Peaked in 92/93 at 10.7%. Lowest in 08 at 3.9% (below structural levels) GFC saw it hit 5.8% Oct 09 Dropped back to 5.1% (Jun 2010) and 5.3% (Jul 2010 due to increased participation rates as total jobs increased) NAIRU is considered to sit at 4.75% External: CAD: -5.8% of GDP (Mar 2010) During GFC fell to -1.7% (Jun 2010) lowest in 10y. BOGS surplus funded by commodity boom see TOT – +1.9% of GDP NFD increased from 32.1-51.7% of GDP (90-10) NFL grown from 42.3-58.7% of GDP (90-10) Exchange Rate Volatility: Historically high Most recently, a huge appreciation from 0.69-0.97 (Dec08-Sep10) TWI 49 at the beginning of century, now standing at around 73 Equality etc. Gini Coefficient: Trend is up – 0.310 (99/00) to 0.331 (07/08) Overall, real incomes have increased by 52% (average) between 94-08 HDI 0.970 (2nd and regularly in the top 5) Environment:Australia is one of the highest per capita CO2 per capita emitters. Copenhagen summit saw minimal reduction in emission schemes.
Economic Statistics
• the global economy
• Gross World Product
• globalisation
– trade
– investment and technology
– finance
– labour
• the international business cycle
Trade and financial flows
• changes in the size, pattern and direction of trade and investment
• the foreign exchange market
• the main participants in foreign exchange markets
• the impact of changes in trade and financial flows on economies
Impact of globalisation on the standard of living in the global economy
Variations in the standard of living in the global economy
• income and Quality of Life indicators
Contrasts in levels of development
• difference between growth and development
• reasons for differences between nations
• developing economies, Newly Industrialised Countries (NICs), transition economies, high income economies
Impact of globalisation
• international convergence
• economic growth, development and the quality of life
• trade, investment and transnational corporations
• distribution of income and wealth
• environmental consequences
• financial markets
• the international business cycle
• implications for government economic policies.
Case study
Value, composition and direction of Australia’s trade and financial flows
• trends in Australia’s trade pattern
• trends in financial flows
• trends in the size and composition of Australia’s Balance of Payments
Free trade and protection
• Australia’s policies regarding free trade
and protection
• aggregate demand and its components: Y = C+I+G+X–M
• measurement of growth through changes in real Gross Domestic Product
• business cycle — trends
Unemployment
• measurement
– labour force
– participation rate
– unemployment rate
• trends
Inflation
• measurement — current Australian Bureau of Statistics measure
• trends
External stability
• measurement
– CAD as a percentage of Gross Domestic Product
– net foreign debt as a percentage of Gross Domestic Product
– net foreign liabilities as a percentage of Gross Domestic Product
• trends
• Federal Government Budgets and budget outcomes
• effects of budgetary changes on resource use, income distribution and economic activity
Monetary policy
• implementation of monetary policy
Structural change
• effects of microeconomic policies on individual product and factor markets and the economy
GWP
$US38,800bn-54,580bn (99-07)
Since 03, World Bank changed to GNP, hence, GWNP (07) $US65,750bn
Global growth averages around 5.0%
G/S
Goods and Services Trade as % of GWP rose from 12% to 32% (64-07)
Half world exports are from top 9 countries (15% of nations account for 70% of trade)
Australia accounts for approx. 1% of world trade
Only 1% of forex transfer is for trade
Capital flows
The 3 decades following 1975 saw:
Int. trade expand twice as fast as RGWP growth
Int. direct investment grew 3 times faster than RGWP (prior 2001)
Int. equity investment grown 10 times the rate of RGWP
Direct Investment
FDI rose 17.8% to $US1.5tr
Portfolio Investment
Dominates (stats too complex)
Technology
76% of Australians now use internet compared 5.3% in Africa and 14% in Asia
Distribution
1.2bn people (20%) live on less than $US1/day
Main Sources of Growth (Current)
China 11.4%
India 9.2%
CIS (Commonwealth of Independent States) 8.5%
GFC
Global economy contracted as a whole by 0.6%. AIE contracted by 3.2%.
Unemployment at peaked around 10% for OECDs, Spain et al even reaching 20%
China dropped from 9.6-9.1% growth projected at 10.% in 2010
Aus: Year to 12/09 was 2.7% growth, projecting 3.25% 2010/11
Global trade shrunk by 10.7% (09)
Australian Trends
Trade:
5 years to 2008/09 saw TOT rise 47%
Fall of 20% in 09 but forecasted rise of 14.25% in 2010/11
Productivity: Multifactor productivity averaged 1.1% pa over the past 5. Far below the 2.3% during the 90s
Growth: Australia managed 1.2% growth during GFC
One negative quarter 0.7% contraction in the Dec 08 quarter
RBA estimates 3.25% growth in 2010, 3.75-4.0% in 2001
Fiscal Policy: mildly contractionary 10-11 due to cyclical and discretionary factors
Large fiscal deficits of -4.2% (09/10) and -2.7% (10-11)
(Deficit reduction $54.8bn to 39bn).
Real spending will be restrained to 2% pa till the budget returns to surplus 1% of GDP
(projected to (12/13) at approx. $1bn)
New taxation reforms adopting Henry Tax review recommendations, inc.
MRRT – 30% levy on non-renewable resource projects
Company tax cuts from 30% to 29% (improve long run Ec. Perf.)
Superannuation guarantee increase from 9 to 12% (2019)
Interest bearing income up to $1000- 50% discount to encourage saving.
Education – Skills for sustainable growth - $661m, Education Revolution - $5.9bn (08/09), projecting 39,000 new jobs.
Infrastructure - $5.6bn to New Infrastructure Fund and $1bn to existing rail networks, designed to boost productivity levels and relieve capacity constraints
Health - $7.3bn over next 5 years to National Health and Hospital Network (GP super clinics, training nurses, increasing beds)
Environment - $652m to Renewable Energy Fund boosting the $5.1bn for Clean Energy Fund (08/09)
CPRS is undecided
Monetary Policy: mildly expansionary
Cash Rate: Fell from 7.25% to 3% (Sep 08- May09)
Currently 4.5% and set to rise
CPI: Since 96 averaged 2.9%
Reached 5% Sep 08
Headline inflation 3.1% (largely due to recent increase in tobacco excise)
Underlying inflation fallen 2.75%
Micro policy:
Factor Markets (Lab/Cap)
Labour Markets
Workplace relations act 96 –
Awards were seen as the safety net of the industrial relations system providing either minimum standards for workers or the benchmarks which agreements were judged
No downward flexibility for Wages
WORK CHOICES!
Change from AIRC to AFPC
Collective Agreements/ AWAs no longer pass no dis. Test.
This removed the award as the system safety net.
Current System – Fair Work Australia – FWA
Removal of formal individual agreements (AWAs)
BOOT test introduced for collective agreements
10 National Employment standards
Modern awards (don’t apply to common law contracts >$113,800)
Awards/Enterprise agreements flexibility arrangements allow individual flexibility
Unfair dismissal laws reinstated, Good Faith Bargaining Conditions
Minimum Wage increased 4.8% to $569.90 (N.B this is indexed to CPI)
The overall combined effect of the changes is to place more focus on collective bargaining whilst reforming awards to make them a more flexible safety net, with NES forming the absolute minimum.
Capital Markets
Began in early 80s
1983 floating exchange rate
Deregulated interest rates
Currently focusing on anti-mergers, credit fees and charges and short selling
Product Markets
Protection Reductions –
Reforms in Manufacturing
(1982/83) PMV 72% protected and TCF 220% protected average 25% all manufacturing. General reforms have been:
General assistance at 5% by 2000
PMV/TCF to 5%
Agriculture has declined from 11% to around 6% on average
Trade Practices Act (74)
Hilmer Report/ National Competition Policy (93) – Regulates Price fixing, boycotts, mergers/takeover(see ACCC).
Public Sector (General)
Commercialised through…
Corporatisation – Aus Post
Privatisation – CBA, QANTAS, Telstra (fail)
Government outsourcing to private firms
Taxation Policy – Income tax cuts, GST (2000)(bad for equality), Fringe Benefits Tax, Capital Gains Tax (these help equality), other tax see budget
Social Welfare Policy- Move from income support policy to active employment policy’
Increases to pension age
Work for the Dole
User Pays Principles e.g. HECS, <bulk billing
Unemployment Rate: Peaked in 92/93 at 10.7%.
Lowest in 08 at 3.9% (below structural levels)
GFC saw it hit 5.8% Oct 09
Dropped back to 5.1% (Jun 2010) and 5.3% (Jul 2010 due to increased participation rates as total jobs increased)
NAIRU is considered to sit at 4.75%
External:
CAD: -5.8% of GDP (Mar 2010) During GFC fell to -1.7% (Jun 2010) lowest in 10y.
BOGS surplus funded by commodity boom see TOT – +1.9% of GDP
NFD increased from 32.1-51.7% of GDP (90-10)
NFL grown from 42.3-58.7% of GDP (90-10)
Exchange Rate Volatility: Historically high
Most recently, a huge appreciation from 0.69-0.97 (Dec08-Sep10)
TWI 49 at the beginning of century, now standing at around 73
Equality etc.
Gini Coefficient: Trend is up – 0.310 (99/00) to 0.331 (07/08)
Overall, real incomes have increased by 52% (average) between 94-08
HDI 0.970 (2nd and regularly in the top 5)
Environment: Australia is one of the highest per capita CO2 per capita emitters.
Copenhagen summit saw minimal reduction in emission schemes.